IDFC misses estimates on rising staff costs

Mumbai: Infrastructure Development Finance Company Ltd (IDFC) recorded a 19.10% rise in net profit in the quarter ended December riding on better-than-expected loan demand from infrastructure projects.

However, net profit at Rs321.47 crore or Rs2.06 per share was lower than Bloomberg estimate of Rs342.41 crore or Rs2.56 per share.

Income from operations, including infrastructure lending, rose 31% to Rs1,306.25 crore from Rs997.43 crore in 2009, much higher than Bloomberg’s estimate of Rs638.81 crore. But that rise could not be translated into profit mainly because of rising employee costs, which rose 63.73% to Rs87.86 crore from Rs53.66 crore in the year earlier. No official from IDFC was available for comment.

Pramod Gubbi, vice-president, equity sales at Ambit Capital Pvt. Ltd, said there was a clear indication that food and commodity inflation is feeding into wage increases in private firms.

“We saw that with IT (information technology) companies in mid-year and now probably private companies in the financial sector have to increase salaries to retain personnel,” he said.

IDFC’s main business is lending to infrastructure but it also has other businesses, namely asset management, investment banking and institutional broking. Revenue from infrastructure operations rose 32.67% to Rs1,184.23 crore from Rs892.61 crore. For other businesses, revenue rose 19.22% to Rs125.54 crore from Rs105.30 crore. The company did not give a segment-wise break up of the various businesses.

Gubbi of Ambit said despite the lower-than-expected profit, the company still remained one of the top firms in infrastructure financing.

“IDFC’s ability to appraise infrastructure projects in the country remains unique despite the opportunity which is large,” he said.

IDFC dropped 0.74% to Rs147.45 on the Bombay Stock Exchange in line with a 0.37% drop in the benchmark 30-share Sensex.

Santosh Singh, banks and financials analyst at Espirito Santo Securities incorporating Execution Noble Ltd, said a muted rise in loan book and treasury income sequentially will have to be explained by the company.

“Loan growth has been muted at 3% versus the quarter ended September and this might pressure the stock. Employee costs have also risen by 30% compared to September 2010,” he said.

Earlier this fiscal, IDFC had guided for a tripling in loan book in the next four years. Currently, the company’s loan book stands at Rs35,000 crore.

Singh said IDFC’s plans going forward would depend on the pace of execution in government projects.

“We have seen a slowdown in some government projects like highways, for example, and IDFC being the biggest financier in this space, it will all depend on the execution of these projects,” he said.

Since said IDFC’s net interest margins for infrastructure lending rose to 4.8% from 4.6% in the same period last year.